The year 2013 has been a rough one for Time Warner Cable (NYSE:TWC) as the company lost many pay-TV subscribers due to multiple factors including channel blackouts and rise of the alternate video platforms. However, the stock gained roughly 50% on the back of broadband subscriber growth and buzz around the cable consolidation led by a potential bid by Liberty Media for Time Warner Cable.
While Time Warner Cable has been witnessing pay-TV subscriber losses for quite some time now, broadband has continued to fuel growth for the company. We estimate that the broadband business constitutes roughly 34% of the company’s value. The cable company is benefiting from the continued demand for high-speed data services as people opt for expensive plans. In an attempt to expand its fiber base, the company recently completed the acquisition of DukeNet Communications, which will strengthen its business services in the Southeast (Read More – DukeNet Acquisition Will Bolster Time Warner Cable’s Business Services In The Southeast). 
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- What Has Led To A ~20% Increase In Time Warner Cable’s Revenues & EBITDA In The Last Five Years?
- How Has Time Warner Cable’s Revenue Composition Changed In The Last Five Years?
- How Much Can Time Warner Cable’s Revenues Grow Over the Next Five Years?
- What’s Time Warner Cable’s Fundamental Value Based On Expected 2016 Results?
There Is Room For Growth In Broadband Business
During the first three quarters of 2013, Time Warner Cable witnessed 15% jump in broadband revenues to $4.29 billion.  The broadband business has done well for the company due to the rising demand for faster Internet and the decline of DSL Internet connections. Approximately 86.1 million U.S. households at the end of the first half of 2013 had broadband Internet access, translating into a 70% penetration of all American households. Broadband Internet will continue to expand, with coverage estimated to hit 74% of households by 2017, equivalent to roughly 95 million homes in the U.S. 
A recovering economy and resurgent housing market, along with an increased need for speed and connectivity, are the main factors driving the demand for broadband. Internet video, video on demand and online gaming account for a majority of the Internet traffic in the U.S. While cellular mobile data is the fastest growing portion of Internet traffic, it accounts for less than 2% of the U.S. traffic, and Cisco estimates it will grow to 5% by 2017.  Video streaming, for instance, requires high data volumes and thus the reliance on fixed networks is far more than the mobile carriers.
Given that only 72% of the population uses broadband at home, there is still much room left for broadband to penetrate, and this will benefit the cable industry in particular as it accounts for 58% of the U.S. broadband market. At the same time, competition has been rising with companies such as AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA) expanding their broadband businesses while Google (NASDAQ:GOOG) is offering 1 Gbps Internet service for $70 in a few cities. Nevertheless, Time Warner Cable has been busy re-branding itself as a major broadband provider and is aggressively penetrating in the commercial business segment. It will be interesting to see how events unfold for the company in 2014, given the thoughts about cable consolidation in the U.S.
- Time Warner Cable Completes Acquisition of DukeNet Communications, Time Warner Cable’s Press Release, Jan 6, 2014 [↩]
- Time Warner Cable’s SEC Filings [↩]
- Broadband Internet Penetration Deepens in US; Cable is King, Isuppli, Dec 9, 2013 [↩]
- U.S. Data Traffic to Triple Over Five Years, US Telecom, Aug 26, 2013 [↩]